From 1 January, the updated FRS 102 revenue recognition rules are officially live. They bring UK GAAP much closer to IFRS 15, introducing a new five-step revenue recognition model that’s designed to create more consistency and transparency.
It’s more evolution than revolution. That’s the good news.
The reality for law firms, solicitors and other professional services businesses? More judgment, more documentation and more pressure to get it right.
So, let’s cut through the noise and focus on what actually matters.
WHAT’S REALLY CHANGED?
1. Revenue is about control, not just billing
Revenue is no longer recognised when risks and rewards pass. Instead, it’s recognised when control of the service transfers to the client.
For professional services, that means focusing on when revenue is earned under the contract terms, including termination clauses, rather than when invoices are raised.
2. Welcome to the five-step model
Every contract now needs to be assessed using the same five steps:
- Identify the contract
- Identify the performance obligations
- Determine the transaction price
- Allocate the price to each obligation
- Recognise revenue as (or when) obligations are satisfied
Simple in theory. Less so when you’re dealing with phased matters, retainers, success fees and variable pricing.
3. Contingent and success fees may hit earlier
Contingent fees don’t always wait for the final outcome anymore. Where recovery is highly probable and reliably measurable, revenue should be recognised earlier under the new FRS 102 rules. That’s a potential shift for firms used to recognising fees only once matters conclude.
4. WIP as you know it is gone
Traditional Work in Progress is out.
In comes:
· Contract Assets (earned but not yet billed), and
· Contract Liabilities (billed or received before work is delivered)
While the underlying position is largely unchanged, the new labels may alter how balances are presented and perceived.
5. Agent vs Principal matters more than ever
Disbursements, referrals, third-party costs. All now face greater scrutiny.
Are you acting as agent, or principal? The answer directly affects gross vs net revenue, so getting this wrong can distort reported turnover.
WHAT SHOULD PROFESSIONAL SERVICES FIRMS BE DOING NOW?
If you haven’t already started, now’s the time.
At a minimum, firms should:
· Review engagement letters. Are deliverables, pricing and termination clauses clear enough to stand up under the five-step model?
· Sense-check systems and processes. Can you track performance obligations, variable consideration and contract assets properly?
· Choose the right transition approach. Full retrospective or cumulative catch-up? Each has pros, cons and reporting implications.
· Upskill your people Finance teams, partners and fee earners all need a working understanding of the new rules.
· Get ahead of stakeholder conversations Lenders, investors and regulators won’t want surprises.
HOW COOPER PARRY CAN HELP
This doesn’t need to be painful or overly technical.
Our specialist team works with law firms and professional services businesses every day, helping them:
· Assess how FRS 102 changes impact contracts and revenue streams
· Redesign accounting policies that actually reflect how you operate
· Support system and process changes (without over-engineering)
· Manage the transition clearly and confidently
· Train teams in plain English, no over-technical waffle
WANT THE FULL PICTURE?
If there’s one takeaway, it’s this: the FRS 102 changes aren’t optional, but the stress, cost and disruption absolutely are.
The smartest place to start is with a clear impact assessment. That first step gives you sight of how the changes affect both revenue recognition and lease accounting, and helps you plan the rest of the transition with confidence.
Starting early means more breathing room, smoother audits and far fewer surprises down the line. We’re already supporting organisations across the UK through this process and it’s making a real difference.
If you’d like to talk it through, contact me, or get in touch with the team today.
